House Hacking a new SFR in 78660 Zip (Pflugerville)

[Gary Lansford]

Hi All,

I'm trying to get my feet wet with my first real estate deal. I have been renting in Austin for the last 5 years and want to attempt at a house hack in a SFR. My GF and I both have good jobs in Austin and see ourselves staying here for at least the next 2-4 years.

I originally wanted to get a duplex but I cannot afford it in this market. So my options are now renting out rooms in an SFR. I spoke with my GF and she is on board with living with roommates for the next 1-2 years.

After reviewing the MLS for about a month, I am considering building a new home in the 78660 Zip code (around hwy 45 and 130). There are lots of new developments going up and we found a few builders that we liked in the area for around the 270k price point all in with some incentives if we go with their lender.

Our current rent is about $1230 and if we bought the house and put down 5% or so I'm looking at a mortgage payment of about $2150 a month. 

I'm looking to rent out 2 rooms in the house for $650 a piece (with a private living room for the roommates) + utilities. So if we are able to rent out both rooms we are reducing our current rent by $400 a month and gaining equity in the home. If we are unable to get roommates then worst case I would be essentially doubling my housing costs.

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Does this plan make sense? Or should I shop for a cheaper deal? Also, does anyone have experience renting rooms in this area? Airbnb an option?

Also FYI - I would be buying the property by myself. If we are able to get roommates my GF and I would split the remaining monthly costs. Worst case - If we cannot find I would pay 2/3rds of the rent (30% of my monthly take-home pay).  I have been pre-approved for $320k.

[Joe Scaparra]

@Gary Lansford I mentor a few young adults and you my friend are the exact person suited to buy a duplex for their 1st property.  Buying your first anything is scary, I get this.  However, it is far less risk buying a duplex in your situation than buying a house.  

Lets look at risk for both scenarios.  You buy the duplex, you buy the house.  Housing market crashes, you lose your job, your financially stressed.  Or you get an opportunity for a job in another city, but housing market is down from when you bought.  If you sell either property you lose money.  If you own the home your forced to sell, not so with the duplex.  Here is why.  Selling the home because you have a large mortgage payment and since you are leaving your risk goes up crazy if you continue to try and rent to individuals by the room.  You may decide to rent to one person, say a family unit.  You would need to seek out $1600 to $1800 in rent to break even.   In a down market with people losing their job, this could prove to be difficult. Now look what happens to the duplex.  Your financially stressed, so you simply move out, rent the other side for $1100 and you now have positive cash flow.  Oh but you say what if I can't find renters.  Well it is far easier to find two $1100 renters than it is to find one $1600-$1800 renter.  During the down turn, rents at $1100 will be far more steady than those at $1600.  Plus you will feel stressed if your home is empty, whereas the duplex is usually going to have one side rented bring in much needed income.  I owned duplexes since 2002, I have never sold any of them and my rents during the last down turn were rock steady or increase during the down turn.  That is because you actually have more people looking to rent low cost (relative) because they were forced from either higher rent/mortgage situations ($1600).   The risk of owning a duplex is the inability to find a renter.  Right now in the Austin MSA if you put a for rent sign in the yard asking for rents below $1200 you have to take it down in 3 to 5 days as you will have too many inquiries.    One more perspective, the reason the duplex is better even if it cost 20k more is that the income production far exceeds the small increase monthly mortgage payment.  Also it is your opportunity to buy investment real estate with 5% - 10% down. 

Don't make the mistake of renting out your personal SFR as an investment once you move out. People I meet either love real estate or hate it as an investment vehicle. The majority of the time for those who hate it, have had a bad experience renting out their personal residence once they leave the home. I simply ask them, if your were going to buy an investment property, would you have bought the home you did knowing you were going to rent it out once you left. Most looking back realize there were better options........a duplex is a better option for investment real estate. Feel free to reach out to me for some coffee, after our meeting I am positive you will walk out with direction and positive motivation to find a duplex.

BTW, I have no conflict of interest, I am not a realtor, I will not try to sell you anything, I am simply a 62 yr old man who flew fighters for the USAF (20yrs), built a financial planning practice (20yrs, and sold it) and now consider myself a successful multi-family real estate investor, who likes sharing my experiences especially to young individuals who can most benefit from my advice.  Good luck in whichever path you choose.